-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, I/9GwN3wZRodPxcb8VQ6mWcbc8oeLYTUE5RK/3DvRHCoKZnwPqfuOdZNmjqptKTj Q39M1HAsBTrk9KHF6CW49Q== 0000912057-00-024913.txt : 20000516 0000912057-00-024913.hdr.sgml : 20000516 ACCESSION NUMBER: 0000912057-00-024913 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20000331 FILED AS OF DATE: 20000515 FILER: COMPANY DATA: COMPANY CONFORMED NAME: TRC COMPANIES INC /DE/ CENTRAL INDEX KEY: 0000103096 STANDARD INDUSTRIAL CLASSIFICATION: HAZARDOUS WASTE MANAGEMENT [4955] IRS NUMBER: 060853807 STATE OF INCORPORATION: DE FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-09947 FILM NUMBER: 636081 BUSINESS ADDRESS: STREET 1: 5 WATERSIDE CROSSING CITY: WINDSOR STATE: CT ZIP: 06095 BUSINESS PHONE: 2032898631 FORMER COMPANY: FORMER CONFORMED NAME: VAST INC /DE/ DATE OF NAME CHANGE: 19761201 10-Q 1 FORM 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q /X/ Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended March 31, 2000 OR / / Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from ________________ to ________________ COMMISSION FILE NUMBER 1-9947 TRC COMPANIES, INC. (Exact name of registrant as specified in its charter) Delaware 06-0853807 - ---------------------------------------- -------------------------- (State or other jurisdiction (I.R.S. Employer of incorporation or organization) Identification No.) 5 Waterside Crossing Windsor, Connecticut 06095 - ---------------------------------------- -------------------------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (860) 289-8631 ----------------------------------- Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to such filing requirements for the past 90 days. YES /X/ NO / / On May 15, 2000 there were 6,878,343 shares of the registrant's common stock, $.10 par value, outstanding. TRC COMPANIES, INC. CONTENTS OF QUARTERLY REPORT ON FORM 10-Q QUARTER ENDED MARCH 31, 2000 PART I - FINANCIAL INFORMATION Item 1. Condensed Consolidated Financial Statements: Consolidated Statements of Operations for the three and nine months ended March 31, 2000 and 1999................... 3 Condensed Consolidated Balance Sheets at March 31, 2000 and June 30, 1999............................................... 4 Consolidated Statements of Cash Flows for the nine months ended March 31, 2000 and 1999..................................... 5 Notes to Condensed Consolidated Financial Statements........... 6 Item 2. Management's Discussion and Analysis of Results of Operations and Financial Condition..................................... 8 Item 3. Quantitative and Qualitative Disclosures about Market Risk .... 11 PART II - OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K............................... 12 SIGNATURE.................................................................. 12 2 PART I: FINANCIAL INFORMATION TRC COMPANIES, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
Three Months Ended Nine Months Ended March 31, March 31, (in thousands, except per share amounts) 2000 1999 2000 1999 ------------ ------------ ------------ ------------ GROSS REVENUE $ 29,376 $ 17,930 $ 81,635 $ 55,324 Less subcontractor costs and direct charges 8,050 3,859 23,443 15,222 ------------ ------------ ------------ ------------ NET SERVICE REVENUE 21,326 14,071 58,192 40,102 ------------ ------------ ------------ ------------ OPERATING COSTS AND EXPENSES: Direct labor and fringe benefit costs 9,517 6,492 26,079 18,220 Indirect costs and expenses 8,215 5,268 22,311 15,313 General and administrative expenses 741 627 2,162 1,834 Depreciation and amortization 690 604 1,984 1,777 ------------ ------------ ------------ ------------ 19,163 12,991 52,536 37,144 ------------ ------------ ------------ ------------ INCOME FROM OPERATIONS 2,163 1,080 5,656 2,958 Interest expense 263 100 686 341 ------------ ------------ ------------ ------------ INCOME BEFORE TAXES 1,900 980 4,970 2,617 Federal and state income tax provision 684 372 1,789 994 ------------ ------------ ------------ ------------ NET INCOME $ 1,216 $ 608 $ 3,181 $ 1,623 ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ EARNINGS PER SHARE: Basic $ 0.18 $ 0.09 $ 0.47 $ 0.24 Diluted 0.17 0.09 0.45 0.24 ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ AVERAGE SHARES OUTSTANDING: Basic 6,830 6,782 6,800 6,782 Diluted 7,281 6,874 7,116 6,822 ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS. 3 TRC COMPANIES, INC. CONSOLIDATED STATEMENTS OF BALANCE SHEETS
March 31, June 30, (in thousands, except share data) 2000 1999 ------------ ------------ ASSETS (Unaudited) CURRENT ASSETS: Cash $ 399 $ 1,368 Accounts receivable, less allowance for doubtful accounts 37,375 31,479 Deferred income tax benefits 1,438 1,231 Prepaid expenses and other current assets 1,107 1,096 ------------ ------------ 40,319 35,174 ------------ ------------ PROPERTY AND EQUIPMENT, AT COST 21,735 20,377 Less accumulated depreciation and amortization (16,806) (16,603) ------------ ------------ 4,929 3,774 ------------ ------------ COSTS IN EXCESS OF NET ASSETS OF ACQUIRED BUSINESSES, NET OF ACCUMULATED AMORTIZATION 29,044 26,519 ------------ ------------ OTHER ASSETS 1,351 605 ------------ ------------ $ 75,643 $ 66,072 ------------ ------------ ------------ ------------ LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES: Current portion of debt and borrowings under revolving credit facility $ 12,700 $ 7,600 Accounts payable 4,745 4,152 Accrued compensation and benefits 3,736 3,433 Other accrued liabilities 2,500 2,558 ------------ ------------ 23,681 17,743 ------------ ------------ NONCURRENT LIABILITIES: Long-term debt 200 300 Deferred income taxes 1,224 1,041 ------------ ------------ 1,424 1,341 ------------ ------------ SHAREHOLDERS' EQUITY: Capital stock: Preferred, $.10 par value; 500,000 shares authorized, none issued - - Common, $.10 par value; 30,000,000 shares authorized, 7,469,246 shares issued at March 31, 2000 and 7,427,846 shares issued at June 30, 1999 747 743 Additional paid-in capital 39,084 38,719 Retained earnings 13,604 10,423 ------------ ------------ 53,435 49,885 Less treasury stock, at cost (2,897) (2,897) ------------ ------------ 50,538 46,988 ------------ ------------ $ 75,643 $ 66,072 ------------ ------------ ------------ ------------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS. 4 TRC COMPANIES, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
Nine Months Ended March 31, (in thousands) 2000 1999 ------------ ----------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 3,181 $ 1,623 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 1,984 1,777 Change in deferred taxes and other non-cash items (24) 25 Changes in assets and liabilities, net of effects from acquisitions and divestitures: Accounts receivable (4,578) 1,299 Prepaid expenses and other current assets (209) (575) Accounts payable 355 (2,265) Accrued compensation and benefits (16) (581) Other accrued liabilities 41 (342) ----------- --------- NET CASH PROVIDED BY OPERATING ACTIVITIES 734 961 ----------- --------- CASH FLOWS FROM INVESTING ACTIVITIES: Additions to property and equipment (2,110) (714) Proceeds from sale of instrumentation business - 2,750 Acquisition of businesses, net of cash acquired (4,177) (1,562) Acquisition of equity investment and other (510) 33 ----------- --------- NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES (6,797) 507 ----------- --------- CASH FLOWS FROM FINANCING ACTIVITIES: Repayment of long-term debt (3,600) (3,600) Net borrowings under revolving credit facility 8,600 1,500 Proceeds from exercise of stock options 94 - ----------- --------- NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 5,094 (2,100) ----------- --------- DECREASE IN CASH (969) (632) Cash, beginning of period 1,368 1,379 ----------- --------- CASH, END OF PERIOD $ 399 $ 747 ----------- --------- ----------- --------- SUPPLEMENTAL CASH FLOW INFORMATION: Interest paid $ 969 $ 368 Income taxes paid, net of refunds 1,499 816 ----------- --------- ----------- ---------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS. 5 TRC COMPANIES, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS March 31, 2000 1. The condensed consolidated balance sheet at March 31, 2000, the consolidated statements of operations for the three and nine months ended March 31, 2000 and 1999 and the consolidated statements of cash flows for the nine months ended March 31, 2000 and 1999 are unaudited, but in the opinion of the Company, include all adjustments, consisting only of normal recurring accruals, necessary for a fair presentation of the results for the interim periods. Certain footnote disclosures usually included in financial statements prepared in accordance with generally accepted accounting principles have been omitted. It is suggested that these financial statements be read in conjunction with the financial statements and notes thereto included in the Company's Annual Report to Shareholders for the fiscal year ended June 30, 1999. 2. Earnings per share is computed in accordance with the provisions of Statement of Financial Accounting Standards No. 128, Earnings per Share. Basic earnings per share is based upon the weighted average common shares outstanding. Diluted earnings per share reflect the potential dilutive effect of outstanding stock options and warrants. 3. In March 2000, the Company's revolving credit facility with a commercial bank was amended to increase the borrowing base to $20 million from $15 million and to extend the term of the facility to March 2003. 4. On January 7, 2000, the Company completed the acquisition of Hunter Associates Texas, Ltd. a civil engineering firm headquartered in Dallas, Texas, which was effective January 1, 2000. The purchase price of approximately $3.4 million consisted of a combination of cash, 25,000 shares of the Company's common stock, a 5-year warrant to purchase 20,000 shares of the Company's common stock exercisable at $7.81 per share and a holdback of approximately $.3 million. The Company could make additional payments based upon revenue objectives in each of the years in the three-year period ending December 31, 2002. The acquisition has been accounted for using the purchase method of accounting. The cost of the acquisition in excess of the fair value of the net assets acquired was approximately $1.7 million (before contingent consideration), which is being amortized over 30 years on a straight-line basis. 6 Accordingly, the following unaudited pro forma information for the nine months ended March 31, 2000 and 1999 presents summarized results of operations as if the acquisition had occurred at the beginning of the periods presented after giving effect to adjustments, including amortization of costs in excess of the net assets acquired, increased interest expense on acquisition borrowings and related income tax effects (in thousands, except per share amount):
Nine Months Ended March 31, (Unaudited) 2000 1999 ------------ ------------ Net service revenue $83,934 $43,005 ------- ------- Net income 3,564 2,044 ------- ------- Earnings per share - diluted $ .50 $ .30 ------- -------
The pro forma financial information does not purport to be indicative of the results of operations that would have occurred had the acquisitions taken place at the beginning of the period, nor do they purport to be indicative of the results that will be obtained in the future. In connection with the acquisitions completed in fiscal 1999, the Company recorded approximately $1.6 million of additional costs in excess of net assets acquired during the nine months ended March 31, 2000 related to an earnout in accordance with the terms of the agreement and adjustments to purchase price allocations. 5. The Company recently entered into several long-term contracts under its Exit Strategies-Registered Trademark- program which involve the transfer of liability from the responsible parties to the Company for remediation of environmental conditions at a site. In exchange, the responsible parties have entered into fixed fee contracts with the Company in amounts based on the estimated costs of remediation. The Company generally assumes the risk for all remediation costs for pre-existing site conditions and believes that through in-depth technical analysis, comprehensive cost estimation and creative remedial approaches it is able to execute pricing strategies which protect the Company's return on these projects. As additional protection, the Company obtains remediation cost cap insurance from rated insurance companies which provides coverage for cost increases arising from unknown or changed conditions. 7 TRC COMPANIES, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION Three and Nine Months Ended March 31, 2000 and 1999 OVERVIEW TRC Companies, Inc. provides technical, financial risk management and construction services to industry and government primarily in the United States market. The Company's main focus is in the areas of infrastructure improvements and expansions, environmental management and information technology. RESULTS OF OPERATIONS The Company, in the course of providing its services, routinely subcontracts drilling, laboratory analyses, construction equipment and other services. These costs are passed directly through to clients and, in accordance with industry practice, are included in gross revenue. Because subcontractor costs and direct charges can vary significantly from project to project, the Company considers net service revenue, which is gross revenue less subcontractor costs and direct charges, as its primary measure of revenue growth. The following table presents the percentage relationships of certain items in the consolidated statements of operations to net service revenue.
Three Months Ended Nine Months Ended March 31, March 31, 2000 1999 2000 1999 ------------ ------------ ------------ ------------ NET SERVICE REVENUE 100.0% 100.0% 100.0% 100.0% ------------ ------------ ------------ ------------ OPERATING COSTS AND EXPENSES: Direct labor and fringe benefit costs 44.6 46.1 44.8 45.4 Indirect costs and expenses 38.6 37.4 38.4 38.2 General and administrative expenses 3.5 4.5 3.7 4.6 Depreciation and amortization 3.2 4.3 3.4 4.4 ------------ ------------ ------------ ------------ INCOME FROM OPERATIONS 10.1 7.7 9.7 7.4 Interest expense 1.2 0.8 1.1 0.9 ------------ ------------ ------------ ------------ INCOME BEFORE TAXES 8.9 6.9 8.6 6.5 Federal and state income tax provision 3.2 2.6 3.1 2.5 ------------ ------------ ------------ ------------ NET INCOME 5.7% 4.3% 5.5% 4.0% ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
8 The revenue growth trend established in fiscal 1998 continued. Net service revenue increased by 52% to $21.3 million during the three months ended March 31, 2000, compared to $14.1 million in the same period last year. For the nine months ended March 31, 2000, net service revenue increased by 45% to $58.2 million, compared to $40.1 million in the same period last year. These increases were due to a combination of internal growth arising out of increased demand for the Company's services and the additional revenue from the acquisition made in January 2000 and from the acquisitions made in fiscal 1999. Direct labor and fringe benefit costs increased by approximately 47% and 43%, respectively, in the three and nine months ended March 31, 2000, as compared to the same periods last year, primarily due to the increases in net service revenue. Indirect costs and expenses increased by approximately 56% and 46%, respectively, during the three and nine months ended March 31, 2000, as compared to the same periods last year. These increases were primarily due to the additional operating costs associated with the businesses acquired in the current year and in fiscal 1999 and internal growth. General and administrative expenses increased by approximately 18% during the three and nine months ended March 31, 2000, as compared to the same periods last year. These increases were primarily due to the acquisitions made in fiscal 1999 and internal growth. However, as a percentage of net service revenue, these costs decreased in both the three and nine months ended March 31, 2000, as compared to the same periods last year. Depreciation and amortization expense increased by approximately 14% and 12%, respectively, during the three and nine months ended March 31, 2000, as compared to the same periods last year. These increases were primarily due to additional depreciation expense on the equipment of businesses acquired in the current and prior year and to additional amortization of costs in excess of the net assets of acquired businesses. Income from operations increased by approximately 100% to $2.2 million during the three months ended March 31, 2000, as compared to $1.1 million during the same period last year. For the nine months ended March 31, 2000, income from operations increased by approximately 91% to $5.7 million, as compared to $3.0 million during the same period last year. The continued improvement in operating performance was primarily due to: (1) the Company's focus toward higher margin, economically driven markets; and (2) the growth in revenue, without comparable increases in operating overhead. Interest expense increased during the three and nine months ended March 31, 2000, as compared to the same periods last year, primarily due to higher interest rates and higher levels of debt outstanding because of acquisitions completed in the current year and in fiscal 1999. The Company's percentage of debt to capitalization ratio continues to remain low, reflecting management's conservative philosophy. The provision for federal and state income taxes reflects an effective rate of 36% in the three and nine months ended March 31, 2000, compared to an effective rate of 38% in the same periods last year. The decreases are primarily due to lower state income taxes. The Company believes that 9 there will be sufficient taxable income in future periods to enable utilization of available deferred income tax benefits. IMPACT OF INFLATION The Company's operations have not been materially affected by inflation or changing prices because of the short-term nature of many of its contracts, and the fact that most contracts of a longer term are subject to adjustment or have been priced to cover anticipated increases in labor and other costs. LIQUIDITY AND CAPITAL RESOURCES The Company relies on cash provided by operations and borrowings based upon the strength of its balance sheet to fund operations. The Company's liquidity is assessed in terms of its overall ability to generate cash to fund its operating and investing activities, and to reduce debt. Of particular importance in the management of liquidity are cash flows generated from operating activities, acquisitions, capital expenditure levels and an adequate bank line of credit. Cash flows provided by operating activities for the nine months ended March 31, 2000 was approximately $.7 million. The cash generated by net income and the non-cash charges against income for depreciation and amortization was partially offset by the increase in accounts receivable due to the continued growth in revenue and by higher income tax deposits and payment of the accrued interest on the subordinated note repaid on July 1, 1999. Investing activities used cash of approximately $6.8 million during the nine months ended March 31, 2000. An acquisition completed in January 2000 and an earnout and other payments on the acquisitions made in fiscal 1999 required the use of approximately $4.2 million. The Company also made capital expenditures of approximately $2.1 million for additional information technology and other equipment to support business growth and invested approximately $.5 million in certain Brownfield redevelopment property. Subsequent to March 31, 2000, the Company used approximately $.5 million of additional cash for an acquisition. The Company expects to make capital expenditures of approximately $.8 million during the remainder of fiscal 2000. The Company maintains a bank financing arrangement to assist in funding various operating and financing activities. In March 2000, the Company amended its revolving credit facility by increasing the borrowing base from $15 million to $20 million, and extending the term of the facility from July 2001 to March 2003. The revolving credit facility is secured by accounts receivable. Borrowings under the agreement bear interest at the bank's base rate or the Eurodollar rate plus 1 3/4%. The agreement requires the Company to meet certain financial ratios. At March 31, 2000, outstanding borrowings pursuant to the agreement were $12.6 million, at an average interest rate of 7.9%. The Company also had outstanding at March 31, 2000 a $.3 million 7 3/4% subordinated note issued in connection with the purchase of Hydro-Geo Consultants, Inc. in March 1998. The note is repayable in three remaining equal installments. 10 On July 1, 1999, the Company repaid the final $3.5 million installment on the subordinated note issued in March 1994 in connection with the acquisition of Environmental Solutions, Inc., with cash provided by the revolving credit facility. The Company expects to increase its available cash flow over the remainder of fiscal 2000, primarily from operations and from reductions in working capital derived mainly from the accelerated collection of accounts receivable. The cash generated from operations, the cash on hand at March 31, 2000 and available borrowings under the revolving credit facility are expected to be sufficient to meet the Company's cash requirements for the next twelve months. YEAR 2000 COMPLIANCE The Company had recognized the need to ensure that its critical management, financial and operating systems would recognize and process transactions for the year 2000 and beyond. As a result, the Company completed a review of all critical and non-critical systems and at December 31, 1999 the Company did not experience any significant disruption as a result of the Year 2000 issue. The costs specific to the Year 2000 issue did not have a material impact on the Company's operating results, financial condition or cash flows. Additionally, the Company completed an assessment of Year 2000 risks of its critical suppliers and customers. Despite these efforts, the Company can provide no assurance that all supplier and customer Year 2000 compliance plans were successfully completed in a timely manner, although it is not currently aware of any problems which would significantly impact its operations. FORWARD-LOOKING STATEMENTS This report contains forward-looking statements that describe the Company's business prospects. These statements involve risks and uncertainties including, but not limited to, regulatory uncertainty, government funding, level of demand for the Company's services, industry-wide competitive factors and political, economic or other conditions. Furthermore, market trends are subject to changes which could adversely affect future results. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company's exposure to market risk for changes in interest rates relates primarily to borrowings under the Company's revolving credit facility with a commercial bank. These borrowings bear interest at variable rates and the fair value of this indebtedness is not significantly affected by changes in market interest rates. An effective increase or decrease of 10% in the current effective interest rates under the revolving credit facility would not have a material effect on the Company's operating results, financial condition or cash flows. 11 PART II: OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits - 27 Financial Data Schedule (for SEC purposes only) (b) Reports on Form 8-K - There were no reports on Form 8-K filed during the quarter ended March 31, 2000. SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. TRC COMPANIES, INC. May 15, 2000 by: /s/ Harold C. Elston, Jr. --------------------------------- Harold C. Elston, Jr. Senior Vice President and Chief Financial Officer (Chief Accounting Officer) 12 EX-27 2 EXHIBIT 27
5 1,000 9-MOS JUN-30-2000 JUL-01-1999 MAR-31-2000 399 0 40,384 (3,009) 0 40,319 21,735 (16,806) 76,643 23,681 0 0 0 747 49,791 76,643 0 81,635 0 75,979 0 0 686 4,970 1,789 3,181 0 0 0 3,181 .47 .45
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